Hackers. Spies. Secrets. This is the menacing language of industrial espionage. But how easy is it to plunder a company for its ideas? Not very, says our guest, Douglas O’Reagan (http://douglasoreagan.com/cv/) , a historian of science and technology. Throughout history, O’Reagan argues, stealing trade secrets has proven more complicated than lifting a blueprint or section of computer code. What makes a company successful is usually much harder to grasp.
But first we look at how one company is trying to pass on the skills and secrets responsible for its success. Reporter Susanne Gietl (https://twitter.com/geatls) visits the small Bavarian town of Ingolstadt, headquarters of German automaker Audi. There she finds hundreds of Mexican workers learning skills, secrets, and the “German way” to build cars so they can bring that knowledge back to Mexico.
Join us for a trip to the murky world of technology transfer.
Show Clock:
00:04 Introduction01:40 Feature story: Learning the “German way” 10:20 Interview with Douglas O’Reagan
Credits:
Hosts: Michal Meyer (http://www.chemheritage.org/about/contact-us/staff-and-scholars/roy-eddleman-institute/michal-meyer.aspx) and Bob Kenworthy (http://www.chemheritage.org/about/contact-us/staff-and-scholars/institutional-advancement/bob-kenworthy.aspx) Guests: Douglas O’ReaganReporter: Susanne Gietl (https://twitter.com/geatls) Producer: Mariel Carr (http://www.chemheritage.org/about/contact-us/staff-and-scholars/roy-eddleman-institute/mariel-carr.aspx) Associate Producer: Rigoberto Hernandez (http://www.chemheritage.org/about/contact-us/staff-and-scholars/roy-eddleman-institute/rigoberto-hernandez.aspx)
Music:
Music courtesy of the Audio Network (http://us.audionetwork.com/) .
“Odyssey” by Kevin MacLeod (http://www.chemheritage.org/discover/media/distillations/incompetech.com) Licensed under Creative Commons: By Attribution 3.0 (http://creativecommons.org/licenses/by/3.0/)
hello and welcome to distillations the science culture and history podcast I’m M Maya a historian of Science and editor of distillations magazine here at the chemical Heritage Foundation and I’m Bob Kenworthy chf’s in-house chemist we’ve all read the headlines Chinese hackers steal billions and Trade Secrets but how serious are these threats Our Guest historian Douglas Oran thinks reports of stolen technology are overblown and there’s more to stealing Trade Secrets than just copying code behind every technological device there’s a whole world of knowledge that can be tricky to define or to quantify just because you steal the designs from an Audi doesn’t mean you’ll be able to put that car together without the doors falling off stealing industry Secrets not as easy as you think first we’ll go to the small town of inat Germany where Ali has brought hundreds of skilled workers from pbla Mexico to learn the German Way of building a car work is a culture here in Germany is there’s no space to to failure then we’ll talk to Douglas Oran about how the US has regulated intellectual property these practices have implications for immigration War and the economy it’s a much sexier story to say we stole this technology than it is to say we copied some Blueprints and then we couldn’t really produce the technology for another 15 years and then it was kind of okay all coming up on distillations by now you’ve probably heard about the Volkswagen emissions Scandal and that it spread to Audi and Porsche but we’re actually going to tell you a different story about Audi and Industry Secrets reporter suzan GLE went to the Audi plant in englot there hundreds of workers from Pueblo Mexico have spent Years Learning the AI way so that they can take it back to Mexico in the middle of the medieval Bavarian city of englad Germany there’s a salaba called bahana on weekends the sounds of Latin music spill out onto the cobblestone street it’s an unusual scene in this quiet City home to one of Germany’s biggest car manufacturers that was a clip from a new Audi commercial you’ve probably noticed it’s in Spanish that’s because it’s announcing the company’s plan to open a plant in San Jose Chapa in Pua Mexico in 2016 there’s just the matter of ai’s principle one name one standard everywhere if AI were doing things the traditional way they’d embed their own German engineers in this new Mexican plant instead they imported 800 skilled workers from Mexico to train for up to a year at AI headquarters in this quiet City 1 hour from Munich the goal to train these so-called imputs in the German way of making cars so they can take Audi philosophy knowledge skills and secrets back to the new Audi Mexico plant businesses in inad like bavana have given AI workers like Ramon a small Taste of Home I am from Mexico a little town that name is Nayarit and I am engineer Ramon has been an englad for more than a year he works in quality control he oversees the random test that happen throughout the production process like the ultrasound exams that control the robotic welding surprisingly there aren’t actually many workers on the floor of the plant it’s more like a room full of robots but it takes skilled people like Ramon to make sure the machines work correctly all inputs are paired with the body for the duration of the time at Audi headquarters was there someone who help helped you with your work uh when you came to Audi or how how did it work yes this was two parts one part was the personal part that this is with this department the personal Department was very very kind and also this the second part also the practics how will you learn it was a a Godfather like the one person that make exactly your work but here in English CH this body program helps workers learn Logistics but it’s also to teach teach them the German Way so what exactly is the German way you might be wondering this is how Ramon describes it because the work is a culture here in Germany is like not like a perfectionist but although you can do better they push you to do better because there no room or there’s no concept are like uh there’s no time or there’s no enough time to do something or there’s nothing imposs will always do because there is be here is very competitive way in this in this industry and there is no uh way or space to to failure and this is how Emilio another worker describes it the high quality work and expectations uh this Progressive for this uh this this this PL work and the punctuality after Emilio got his engineering degree in Mexico in 2013 he got hired by Volkswagen the Mexico six months later they offered him a job at AI headquarters in Germany to prepare he spent a year learning German language and German culture in Audi it is important because also because of the culture that uh always we have a plan you don’t you don’t it is not not easy to be spontaneous Al all need to be planned you need to to program your work you have your your eight work hours and you you need to to use this this time to to the to to make your your your daily work that is something that maybe in Mexico is is not is not too common now emelo is back in Mexico working at the new AI plant there he serves as a bridge between his team in englad and the engineers in San chiaa it was obvious they cannot move this complete Department to Mexico to make the support when problems arise he’s the goto guy I take these topics I take these questions and I discuss it with with with Germany it’s a very important position because I am I am the technical contact between Germany and and here in Mexico he’s also using what he learned about the German Way something that always you learn here in Germany is is this uh punctuality uh skills because they like always to be in Time in Mexico maybe you can take like uh five or or 10 minutes uh tolerance um when you are in a meeting or when you when you want to make something but right now I I also learn this this skill so I like to be always in time I I make all in time all or already planned but in addition to these new time management skills workers like Emilio are taking something else back to Mexico Trade Secrets they gave me a document where was stated that I work in a in a confidential area that I’m not allowed to to share speaking or or in in paper or with email or or with USB I don’t know with it is it it was it is it’s one of of the the steps uh you need to to feel when you enter to to this department to the technical Development Department because it’s it’s all about Concepts about new developments about new technologies so I am not allowed to to share these things and when Ramon goes back to Mexico he will also take something unexpected a new confidence in himself and in Mexico’s ability to be a center for Innovation and creativity not just a place that manufacturer as good for other countries I think that was necessary to come here to realize that is all is possible we don’t need to expect something to to take take from other countries more more advancing country and Mexico I think the with this histor uh history that we have just to produce to production to manufacturing something for the United States for example but it’s I think that is the same the Mexico you need just need to wake up to see that is no big difference to produce something to make complete do uh something when AI Mexico opens in 2016 they will employ 3,800 workers all of them will have gone through extensive Technical Training as well as courses in German language and culture also they can practice the German Way of car production in a country that is not not German at all for distillations this is zzan Doug we’d like to welcome you to the show thanks for having me what is technology transfer right well there’s two real definitions in common usage today one of them is when something’s invented in Academia and then becomes part of Industry you have a tech transfer office sometimes that’s one side that’s less what we’re talking about more of what we’re talking about today has to do with when for example a business wants to move into a new field a new Geographic territory they might want to set up a new office and then transfer their technology into that new territory or they may buy a company in another country and want to equalize the technology between them and so there’s this issue of how do you transfer the technology from one context to another and it’s sometimes a lot less trivial Than People imagine because so many of these skills are actually embedded in the culture around them either the specific culture of the factory or just the labor market in your entire country or uh whether you expect people to work for certain wages or all all these different things contribute to the technology and and that then ties into the concept of knowhow doesn’t it yes so knowhow is an idea that the common example is riding a bike you don’t learn to ride a bike by reading a textbook somebody shows you how to do it you practice it yourself and so you acquire the knowhow to ride a bike you can do it uh even if you can’t explain in words how to do it that applies at the business level as well if you’re trying to run a bottling plant it may be the case that things will run more efficiently if you have things oriented in this way versus that way if you have six people on this shift and four people on the next shift all these little things that you would need to have an actual patent in this technology in this idea in this Innovation still can be extremely important in business and so this idea of knowhow even though we use it sort of generally today actually became a very specific technical legal term in American law and in international law in the 1940s 50s 60s and a little bit of the 70s before to some degree being taken over by the idea of Trade Secrets which is more of what we talk about today for this reason it actually became quite popular in the’ 60s and70s to have joint patent know-ow licenses where the objective is if I want to transf you this technology this license will say not only do you have the patent which is the exclusive right to produce this technology uh so if somebody else develops this technology independently and you have the pat you’ve licensed it from me you’re still the only person who can produce this if you were relying just on secrecy just on having the knowhow and someone else developed it then they’re free to produce that product but now you have licensed the patent and you’ve licensed the knowhow so what will likely happen is I’ll embed my engineers in your factory for some weeks or months or you’ll send yours over to my factory for some weeks or months and so we’ll transfer the technology that way and I’ll sort of take on the onus of making sure you’re actually able to produce this technology effectively in in actual Market aable terms can you give us an example of where transferring knoow has failed well there are a lot of cases where people haven’t really considered this idea entirely for example in the first world war when the US was at war with Germany the US seized all of Germany’s patents and trademarks the other countries at war did this as well and in the US they decided to license them to American Chemical firms and so all of these firms now had the German patents and the patents all have an explanation of what’s supposed to be the the technology they all say the details what makes this Innovative and the idea is that after the patent expires this technology will enter General circulation that way but what the American chemical companies found was that having this patent wasn’t actually enough to transfer this German technology as they went in and tried to use it they weren’t actually able to recreate the patented Technologies nearly as well as they had hoped and so after the war when Germany sued the chemical Foundation who was the American group who had these patents they chemical Foundation was able to argue successfully in US courts that the patents were not worth much of anything because they didn’t accompany the knowhow that would have actually allowed them to produce this effectively cost effectively and in a reasonable capacity what was some of the Technologies and products that Americans were trying and failing to make people thought Germans were ahead in a lot of Industry we still have this idea today German engineering is the thing that they’re known for they they have a lot of really high technology in cars or whatever else really thought that Germans had a lot of technology in other areas that were valuable too so there was interest in acquiring German technology Beyond just chemicals uh everything from toy making wood products you really anything you could name the postor War II period wasn’t that a case where it wasn’t so much the knowledge being brought over it was the actual scientists German scientists that were brought over at the end of World War II in practice yes people at the time after the second world war did look for German science America Britain France lots and lots of countries sent in teams to try to investigate German signs and as the Cold War started advancing in the late 40s to then try to deny any scientist possible to the Soviets they didn’t want the Soviets to gather this German knowledge intelligence knowhow whatever you would want to term it America and Britain came together and decided to organize a program to send investigators from industry from a wide range of Industries throughout German touring it investigating plants copying doc sometimes taking prototypes this was actually a really high priority issue scientific and Technical intelligence for the first time really at at this scale that Science and Technology were at the core of intelligence efforts and so after the war there was this idea that we’re going to take German industry as well this will be what uh has been called intellectual reparations but as it turned out people kept complaining that you couldn’t capture the knowhow in these reports however well written they were however thorough however much data you weren’t actually getting this this side of things is there a simple legal definition of knowhow there’s not a simple legal definition of knoow it’s something that is evolved over time it was a the practice of Licensing knowhow was something that was really useful to businesses in the 50s and 60s so the definitions of knoow sometimes you’ll see in these contracts will say something like noow is defined at to include all the information in the uned memories of company’s employees I don’t know how you’ve proven Court the unaged memory of somebody’s employees I think a lot of these phrases are in there to try to capture this General thing while also providing the service but that actually raises another point which is that for the IRS they care very much whether know how that you’re selling to somebody is a capital good is is it intellectual property in the same way that a patent is or is it just a service am I just selling you the services of my engineers in your factory let’s talk about about Trade Secrets can you give me an example of a trade secret court case something that ended up in court a programmer at Goldman Sachs had programmed uh some of the high frequency trading algorithms that are used so frequently in in certain Wall Street firms today he copied some of the code he had written onto an off-site storage base and he was in fact imprisoned for a year after he’s being found guilty before his verdict was before another Court took away the verdict so this is actually very high stakes what was he actually convicted of was it the fact that he had uh written down some of his code in his own private files my understanding is it’s code he created regardless having the code off of the property of Goldman Sachs whether it was off-site storage or actually printed out I believe he had a USB key that had this material on it as well on his person when he was arrested afterwards um that was that was the violation those the code and the trade secrets that were sort of embodied in this code or surrounding this code were the property of Goldman Sachs and it was considered industrial Espionage to make that potentially available to someone else are these laws about Trade Secrets related to non-compete clauses there’s a a famous observation lately that the sandwich chain Jimmy Johns had non-compete clauses in all of its sandwich artists uh employment contracts so that in theory Jimmy Johns could have sued any sandwich maker who then went on to work at Subway for violating the Trade Secrets or or at least uh violating the terms of their employment contract that seems more punitive than anything else that does not seem at all well there there are important issues going on here I don’t want to make too much light of this there there is a reality of industrial Espionage and there is a reality of America’s technological lead being something the state has a good reason to try to preserve through a variety of mechanisms there are people from other countries who are trying to gain American industrial secrets for their industrial benefit or state industry but yes it has given a lot more power to employers today than they had 30 years ago to try to keep their employees in house by threatening them with Trade Secrets violation with violating the non-compete clauses in their contracts law professor orley Lobel has written a great book Talent wants to be free arguing that not only not only does this limit employees Mobility options it’s actually bad for the businesses themselves they lose out on Innovation and they lose out in the long term on money when they prevent their employees from circulating through the industry through her quantitative uh study of this issue she actually found there was more innovation in firms who had employees circulating in and out than those that try to keep their top people in house by whatever means are necessary so I want to go back in time a little bit we’ve spoken about World War I and World War II I want to spend some time with the Cold War because that also seems to be a time where you have two major economic blocks Soviet Union the Western world and I don’t know but I suspect there was a lot of um attempts at thieving of knowledge going on can you talk a little bit about that so historian Christy mccarus has written about the East German secret police or shazi who tried to take Western Technologies continually over decades and her argument is that these attempts to Ste Technologies from abroad sort of permanently put them in the backseat they were always trying to catch up and so they were never in the lead because they weren’t working on their own stuff they were just trying to steal from elsewhere this is again goes back to studying the the Nazi economy which used an awful lot of slave labor if you don’t have slave labor some of the production techniques the Nazis used for example on the V2 missiles aren’t quite as effective so you have to find a new way of doing that that actually works for you rather than trying to copy what worked uh when you have this sort of very different situation but there’s also a great deal of fear of paranoia about this technology being taken that I think goes well beyond the actual sort of on the ground realities there were spies I don’t want to say that there weren’t spies but this idea that the Soviet spies were going to take our technology and sort of by analogy today that Chinese spies are going to take our technology or before that the Japanese spies were going to take our technology all of this is used as a tool by American industry and Industry in other countries to say that we need stronger protections about this that we need to have more defense spending on Cyber Espionage protection that we need to uh escalate these sort of issues and so that gets used as a rhetoric in other political battles and so while there is a reality there I think it gets inflated a lot so how do these fears of countries stealing secrets from other countries how does that connect to things like immigrant reform where businesses do want to bring in workers from overseas is there a fear that these workers will in turn steal stuff for other countries it’s it’s definitely a concern and this is actually another issue that has changed within at least some of our lifetimes in that in the 1950s there actually was a change in American Immigration policy towards no longer caring as much about the race of people coming in no longer caring quite as much about family connections of people coming in and that way but instead about bringing in as a priority people with scientific backgrounds with technical skills and we see these debates all the time today should we have more of these H1B visas that allow technical workers to come into the United States who as far as industry can argue there’s no one locally who can do that job other people argue other people locally who can do that job at the wage the industry is willing to pay and that industry uses these H1B vises as a a rhetorical tool to try to lower labor costs could you Define Cyber Espionage well this is something that’s very quickly evolving today I think the US defense department who has been developing a cyber anti-cyber Espionage team or perhaps offensive cyber Espionage team would look at it as foreign hackers perhaps sponsored by a foreign government perhaps sponsored by Foreign industry or working alone for whatever reason breaking into American systems and Gathering data Gathering blueprints Gathering access to knowledge that’s being entered into of course our more and more interconnected industrial society to me that sounds scarier than out and out stealing something somehow I I don’t know why but there’s a sense of ooh it’s sneaking into systems and we don’t know quite what they’re taking or what they’re going to do with it there’s more of a sense of Menace somehow it’s a it’s a sort of scary thing it’s it’s a great plot device and and of course this is an issue that it’s really hard to St study because no one wants to let their stockholders know that they’ve been broken into their computer systems were broken into perhaps through incompetence perhaps because the other people were just that skilled uh but either way people like to keep this quiet but this this sort of worry about other countries taking your technology has also backfired sometimes in American history I’m thinking of the case of a rocket scientist in California back in I believe the 1960s who was one of our our great scientists at the time he was a Chinese National who came to America was I believe a US citizen worked for a long time producing technology in American AOS space but during the McCarthy era people were so worried about having an ethnic Chinese man as one of our top scientists that they were able to drive him out of the industry at which point he went back to China and actually did help the Chinese develop their Aerospace technology this paranoia can be self-fulfilling when we’re so worried about keeping today for example a Chinese researcher who comes in and gets a PhD in American biophysics or any other field May immediately have to turn around and leave because our Visa process doesn’t allow him to stay and start a company in the US because we’re so worried to some degree about what he might gather and take back elsewhere we’re not allowing him to stay and develop the the same industry here and if what you’re saying is right having such a person work in the USA even if they go back to China later might end up being a win-win for for both countries one of the funny results that economic historian Petra Moser has found is that when American firms seized German patents after the second world war in the industries where those patents were seized American industry flourished especially there was there was a noticeable bump okay but in fact in those same Industries German industry disproportionately flourished so if I’m an American firm who took this patent from Germany now I sort of know what my colleague in Germany is working on we may go into business together when we wouldn’t have for cuz I didn’t know his capabilities I didn’t know what exactly he had to offer he didn’t know what I had to offer but now we speak more of the same language so some of this communication can have counterintuitive effects for distillations I’m M Maya and I’m Bob Kenworthy thanks for listening